RF's Financial News

RF's Financial News

Sunday, November 6, 2016

This Week in Barrons - 11-6-2016

This Week in Barrons – 11-6-2016:

“Life moves pretty fast.  If you don’t stop and look around once and a while you could miss it.”  Ferris Bueller

On the eve of potentially one of the most contested, controversial, and eye-opening Presidential campaigns in decades I’d like to say thanks:
-       To Jeff Immelt – GE Chairman and Head of the U.S. Commission on Job Creation, for moving GE’s X-Ray Division from Waukesha, Wisconsin to Beijing, China.  I’m guessing President Obama forgot to tell you to create jobs INSIDE the U.S.
-       To Saudi Arabia – for lowering the price of oil so that the world is swimming in it.  This week the price dropped below $45 per barrel, and some of that could be attributed to Weatherford Oil’s insolvency issue (having $8B debt and only $600m in cash to pay for it), but without real production cuts – prices could soon move to $26 per barrel.
-       To President Obama – for keeping over 5 wars going simultaneously – NONE of them approved by Congress.
-       To Wikileaks for showing that Donna Brazile (on two separate instances) gave Hillary Clinton the debate questions BEFORE the debate.
-       To the FBI agents who (on their own time) found a pattern of pay-to-play bribery concerning the Clinton Foundation that includes the monetizing of political influence, fraud, obstruction of justice, and a possible RICO conspiracy.
-       To Wikileaks for saying that their source for all of their information is NOT Russian hackers, but rather “good-guy insiders” within the U.S. government who wish this information be known.
-       And to Chris Matthews for saying: “Do you like uncontrolled, illegal immigration?  Do you like the string of stupid wars from Iraq to Libya to Syria?  If you said yes to any of that, and if you want to keep it that way – then vote for Hillary Clinton.  If you wake up the day after the election, and it is the same as it is today – remember you had the chance to change it but you were too dainty to do it.”

The experts say that a Trump will win will depend upon:
-       The 'silent majority' of working-class white males showing up to vote,
-       Hillary Clinton bleeding votes to Gary Johnson – especially in Utah,
-       The African-American and Latino voter turnout dropping, and
-       The Northeast coming out in favor of Trump.

I’d like you to consider one thing.  Even though all of the anecdotal evidence suggests a Trump win (Trump-Pence signs on lawns, Trump vs Hillary attendance at rallies, Trump vs Hillary digital footprints, etc.) – let’s assume Hillary steals the election.  Trump will contest it and start bringing up evidence of fraud.  What happens if during that election investigation, the ‘good guys’ at the FBI find a way to get Hillary indicted via the foundation?  What the heck happens then? 

Unfortunately, I don’t think Tuesday ends anything – I think it’s just the beginning.  And I really hope that I am wrong.

The Market...

The question is: What aren’t we going to do?” … Ferris Bueller

Factually this week:
-       We received the results of the FOMC meeting = No rate hike.
-       We broke-down thru DOW 18,000, and landed at 17,814,
-       We broke-down thru S&P 2,100, and landed at 2,082,
-       The PMI fell, the Dallas FED fell, and we had another week of record outflows from mutual funds.
-       We had record low levels of Insider buying, and even a slow-down in stock buyback announcements.
-       Obamacare rates in most states will increase between 25 to 100+%.
-       The strength in the U.S. Dollar will put a lid on earnings, and may slow the FED’s hope for rate increases.
-       Corporations continue to embrace M&A over capital investments.
-       The Non-Farm Payrolls Report showed that we added 161k jobs – BUT:
o   Part time jobs increased 90,000,
o   Full time jobs DECREASED by 103,000,
o   The Birth/Death model created 197,000 fictitious (phantom) jobs
o   The Net Result – we actually LOST 36,000 jobs.

How many ways can you say volatility?  It has been 36 years since we’ve seen the S&P fall for 9 straight days.  Although a 9-day losing streak sounds incredibly bad, we are only off 4.7% from our all-time-high.  July 7th was the last time the S&P closed under 2120, and for almost 4 months the market bounced between 2120 and 2190.  But Friday’s close below 18,000 on the DOW, and 2,100 on the S&P – could get interesting.  But the more intriguing fact is that year-over-year we are now in the RED.

Since the great plunge of 2008, Governments and Central banks round-the-world have gone to incredible lengths to push the equity markets higher.  The U.S. is the strongest horse in the glue factory, and despite all the trillions in stimulus, we're limping along at a 1 - 2% GDP.  Imagine for a minute that the Central Banksters stopped printing, stopped buying stocks, stopped buying corporate debt, and stopped QE.  After all these years, the only thing we would have to show for the trillions in debt is a silly stock market.  No matter who gets into power things are going to change.  By combining the market wanting to go lower with the insanity of the election – we could be looking at the start of something.

So long-term (whether Hillary or Trump win), I believe the market goes lower next year.  In terms of an immediate reaction, the market's initial reaction will be quite different.
-       If Hillary wins, I think we see a major 3 to 5-day rally that pushes us right back up against the all-time highs.  This becomes a ‘blow off top’, and we start a long gradual slide that doesn't end until the markets are down over 40%.  So with Hillary, I think we get an immediate ‘pop’ and then a gradual ‘drop’.
-       If Trump wins, I expect to see a sell off as much as 20% that is both sharp and quick.  Then the normal ‘dead cat bounce’ sets in that lasts for a bit, and then a much slower slide lower.  So with Trump, I look for an immediate sell off, soggy bounce, and then a prolonged downturn.
-       Therefore, I think the short-term play on Monday would be to buy a straddle and take advantage of any large market move higher or lower.

After 7 years of being propped and prodded higher, this bull market has probably run its last range and is in need of a hefty correction – that could last for a long time.  Remember, the market takes the stairs up, but the elevator down.  In other words, crashes and corrections are normally fast and hard.  I would ask your financial advisor about buying protection (potentially via puts) in case this market does finally correct.

This should prove to be quite an exciting week.  I hope you have enough popcorn. 

An investing roadmap for:
-       A Hillary win:
o   Banks would move higher for a while: GS, JPM, MS, BAC, and C.  You could play this using the financial ETF = XLF, or the 2x financial ETF = UYG. 
o   Foreign banks should move higher as well: DB, BCS, CS and RBS.
o   Aero and defense stocks will benefit: GD, RTN, NOC, and LMT.  You could play using the aerospace/defense ETF’s = XAR and ITA.
o   Hillary doesn’t like the prices in healthcare or bio-tech so watch for those to be under pressure.
-       A Trump win:
o   Coal will move higher and the easiest play is the coal ETF = KOL.
o   He wants us to be energy self-sufficient and will push for more oil and gas drilling.  Look toward some offshore drillers like RIG and DO.  He will try and put the frackers back to work, so look for him to sell natural gas around the world with UNG.
-       For playing the ‘short side’ of the market (i.e. making money when the market is going lower) consider some ‘Inverse ETFs’ such as:
o   SEF, UYG, or FAZ in the financials,
o   To short the DOW use DOG, 2x = DXD,
o   To short the S&P use SH, 2x = SDS, and
o   To short the Russell 2K use RWM.
-       I suspect major volatility is heading our way, and having some exposure to it makes sense.  Look at buying some VIX and some VXX – to play increases in market volatility.  Remember there are no cash values to these indexes, but rather they are based upon the number of calls versus number of put options – and can get pretty wild at times.
-       And of course you could simply buy put options on the SPY, DIA, XLF, and IWM.

To follow me on Twitter.com and on StockTwits.com to get my daily thoughts and trades – my handle is: taylorpamm. 

Please be safe out there!

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